Our website uses cookies to understand content and feature usage to drive site improvements over time. To learn more, review our Terms of Use and Privacy Policy.
Green Premiums: The Extra Cost to Decarbonize
Green Premiums: The Extra Cost to Decarbonize
What’s a green premium? Why does it matter? Explore the concept that has a big impact when it comes to addressing climate change.
Think about the following questions as you watch the video
What is the green premium?
How might the green premium impact a school cafeteria’s ability to serve plant-based burgers?
In addition to sales price, what other factors are included when determining the green premium for an electric vehicle?
What is a negative green premium? What’s an example of a negative green premium?
Why do heat pumps continue to have low adoption rates?
Why is understanding the green premium an important part of reducing emissions?
: Hi, I'm Niki Nejadrasool, and in this video, I'll explain green premiums—the extra price to get to
: zero. For the last century, our lives have been powered by cheap fossil fuels—our gas- powered
: vehicles, our coal powered electricity—all of it depends on cheap energy. Moving to
: a carbon net zero world will not be easy and it will not be cheap. But how much more will
: it cost? Most people have come to expect low carbon alternatives to cost a little bit more,
: and right now, electric cars do cost a little more than gas-powered ones, plant-based meats
: cost a little more than real meat, and while solar panels eventually pay for themselves,
: they cost money to install. This extra amount we pay now to reduce our carbon emissions is what
: we call the green premium. Green, because it's about making a choice that is better for the
: environment. Premium, because it's an additional price or premium that one pays. And over time,
: as more people buy and use low carbon options, we expect the difference in price, the green premium,
: will go down. But let's take a little time to unpack what that means with three different
: examples. Hungry for a specific example of a green premium? Let's look at our first case study:
: plant-based meat. When we think about carbon emissions, we tend to think about those emitted
: from planes, cars, and trucks. Did you know that cows emit gas as well? Funny, yes. But if we
: want to get to net zero, cow emissions are also serious business. In fact, the methane gas they
: produce accounts for more than 4% of all global emissions. Ew! One way we can reduce methane
: emissions is by replacing meat from livestock with plant-based meat alternatives because then
: we won't need as many cows. Many people are doing just that. In fact, the popularity of plant-based
: burgers has skyrocketed in recent years. Even so, plant-based meat is still about 50% more expensive
: than conventional beef. In other words, if on the day we recorded this video, ground beef costs
: on average $5 per pound, then plant-based meat costs on average about $7.50 per pound. So how
: much would it cost for your school cafeteria to serve every student a quarter pound, plant-based
: burger instead of a quarter pound beef burger? Let's figure out the green premium for that
: substitution. Take the difference between the cost of one pound of meat and one pound of plant-based
: burger, or $2.50, and then divide that by four. The answer is about 62 cents for every quarter
: pound burger, and that's the green premium—62 cents. And that's just for one burger. A school
: might make hundreds or even thousands of burgers every day. Now let's shift gears for our second
: example. Calculating green premiums isn't always simple. Consider electric cars. What's the green
: premium for switching from a gas powerered car to an electric one? Well, studies show that electric
: cars cost on average $10,000 more than their gas-powered counterparts. So you're probably
: thinking the green premium for electric cars is $10,000, but slow down. It turns out that
: the green premium for making the switch from a conventional to an electric car is not just the
: difference in sales price. We also need to account for the different costs of owning and operating
: the cars. Now generally speaking, electric cars are much easier to maintain than cars
: with combustion engines. Gas-powered cars require regular oil changes and have lots of moving parts
: that sometimes need to be fixed. There's also the cost of filling up your car at the gas station.
: Of course, owning an electric car comes with its own costs. For example, some owners might
: have to install a fast charging station at home. Still, over the long term the cost savings from
: driving an electric vehicle probably outweigh the additional costs of purchase. So while the green
: premium for purchase is higher, it could still make financial sense to switch to an electric
: car. And this calculation might be different for different people. Costs can change based
: on where you live, your specific model of car, or government programs to make buying these cars
: cheaper. Now for some good news: sometimes going green can actually save you money. That is to say,
: a green premium can also be negative. For example, 90% of US households have some type of air
: conditioner. Typically, that air conditioner is the biggest consumer of electricity,
: more than the lights, refrigerator, and computer combined. So air conditioning costs money to run,
: on average between 10 to 90 cents an hour, depending on the unit. That doesn't sound like
: much, but for most families, it comes to anywhere between $900 and $1,200 a year, depending on where
: they live and how much they run their AC unit. And here's where the potential green premium savings
: comes in. Replacing your AC unit with a new efficient electric heat pump and cooling system
: might actually save you money. Why? Well, heat pumps cool the house by transferring heat out of
: it. As a result, electric heat pumps and cooling systems are more efficient than traditional air
: conditioning systems. This means they require less electricity to run than conventional AC units. In
: fact, they can reduce some some homes electricity use by as much as 50%. In Houston, for example,
: the resulting savings amounts to 17% per year or $170, while in New Jersey, it's 25% or $250 per
: year. Now that's cool! You may think a technology with a negative green premium would be in every
: home around the world by now, yet only a small percentage of homes have heat pumps installed. Why
: aren't they more widely adopted? Good question. It's expensive to replace a whole air conditioning
: unit and people usually wait for their system to break down before changing it, an opportunity that
: presents itself only every 15 to 20 years. So a lot of people end up running their inefficient
: older systems for a long time even though they have to pay more to do so. How uncool is that?
: Understanding the greenpremium can play an important part in efforts
: to make change. And most importantly, calculating the green premium for any
: particular technology can help consumers and governments decide how to direct our time,
: attention, and money into the innovations that will cut emissions most efficiently.